New ROI Metrics Vie in MarketBy Baselinemag | Posted 2002-05-15 Email Print
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Microsoft, Sun and other technology vendors are pushing economic analyses along with their products to potential customers. Does it make sense to pay attention to the results?
When the going gets tough, the tough sell metrics.
Metrics, that is, that could help them sell more of their own products. With corporate budgets tighter than a tick, it's not just consultants such as Gartner Inc. hawking analyses of costs of, and returns on, information systems. Increasingly, technology suppliers themselves are jumping in to help CIOs make business cases for deploying new hardware, software and services.
But what's the value to a potential customer of Sun Microsystems performing a storage study that demonstrates that its own technology will provide the most bang for the buck? For that matter, are these newly marketed metrics, like Microsoft's Rapid Economic Justification (REJ), Gartner's Total Value of Opportunity (TVO) or Giga's Total Economic Impact (TEI), bringing any new analytical value to customers? Or are they like old wine in new bottles?
"There's no new math," concedes Bob Parker, a vice president with the Boston-based analysis outfit AMR Research. "And you've got to take all of this with a grain of salt. How many Linux recommendations has Microsoft made?"
Despite such caveats, the new metrics have their place, Parker says.
"It seems that these studies are seldom used to make a decision about selecting one vendor versus another. Instead, they are more about when a company should make a particular technology investment," Parker says. "Users' eyes are wide open about this."
Serono, a Swiss biotech firm, knew what it was getting when it contracted a little more than six months ago with business software and infrastructure provider Manugistics to perform a so-called Manugistics Value Assessment. The resulting study helped Serono's global supply chain project director Peter Laurence make a business case to his man- agers for purchasing new Manugistics collaboration and forecasting software.
"When I did this study with them [Manugistics], I made absolutely clear that it was neutral and they shouldn't talk about their products, but about the business processes. We took every reference to their products out of our documentation when we [in the supply chain IT group] made our presentation to our [business-side executive] sponsors," Laurence says. "Clearly, though, some of it [the Manugistics report] was Manugistics-centric."
Electricity company Ontario Power Generation (OPG) also knew what it was getting when it hired Microsoft last September to provide an REJ study on its planned Windows upgrade.
The Business Value Group at Microsoft has been performing REJ analyses for customers for the past two-and-a-half years, even though Microsoft only recently began marketing actively its REJ service.
In undertaking an REJ analysis, Microsoft first assigns one or more of its consulting partners to the case. The partners conduct interviews with top executives and decision-makers. Questions focus on where the company is today, technology-wise, and where they want it to be in 18 to 36 months. The partners apply standard metricsnet present value, internal rate of return, economic value add, and the liketo calculate returns.
OPG "went in with very low expectations," says Syed Mir, vice president of electricity production and corporate systems. "We thought it [REJ] would be a Microsoft sales pitch."
At first, it looked as if Mir's fears were justified. Microsoft's initial REJ results were too high because it overestimated the intangible savings OPG could expect from factors such as ease-of-use and laptop connectivity improvements, Mir says. But Microsoft made a second pass at the study, at OPG's request. The conditions: If Microsoft could make a case for upgrading to Windows XP operating system on the client computers and Windows 2000 on the server, relying purely on hard-dollar savings, the utility would go with Microsoft's upgrade proposal.
Microsoft's REJ analysis showed that by using a combination of XP and Windows 2000, OPG could squeeze its 55 mail servers down to 15 and reduce its number of domain servers from six to one. Also, by leapfrogging Windows 2000 on the desktop and upgrading immediately to XP, OPG could realize substantial savings, according to the REJ analysis. Microsoft found that OPG could achieve 20% ROI after three years by upgrading once instead of twice on the desktop side, Mir says.
"It would have taken us six months to a year longer to buy in on our upgrade plan without REJ," Mir says. For us, "it was a fast-track mechanism."